How Governments Can Support SMEs
It is no secret that small and medium business enterprises play a major role in spurring economic development. Governments everywhere have begun to ask themselves what they can do to encourage the growth of SMEs, thus enabling them to contribute to the national economy. There is quite a large gap, however, between the intentions of governments and their understanding of the needs and challenges SMEs face.
Even before there is a business to support, when professionals are just considering whether or not to take the risk and embark on the journey, they are likely to back out if they are unsure whether the government will mitigate some risks and whether they will receive any support.
"There is quite a lot that governments can do to support SMEs," says Moti Blau- an entrepreneur, international marketer and lecturer for our SMEs programmes. "There are operational/ financial challenges as well as marketing/business challenges that they all face. Governments do have the ability to ameliorate both." We spoke to him to understand how.
Operational/Financial Challenges
Normally the challenges most felt when establishing and developing an SME are the financial ones. It is very difficult for them to receive loans, for example, as SMEs constitute a financial risk for funding institutions. Governments could assist in numerous ways, including providing collateral, creating and supporting specific loans to SMEs or grants to those that achieve certain goals, like improving productivity or hiring additional personnel. They could also favour them in their taxing policies.
Often governments wish to encourage doing business with SMEs, but they themselves do not do enough business with them. Their tenders frequently demand financial requirements that are rarely realistic for SMEs, leaving them out of the game. Barriers could be in some specific cases. Additionally, governments often delay payments, which might be tolerable to big business but could be disastrous for some SMEs.
"There is also the human resources issue that they deal with," says Blau. "It is often difficult to find and train the right people. The government can supply subsidised training for their employees to increase their productivity and ease the investment required by SMEs after hiring new personnel.
Marketing/Business Challenges
Blau explains that, after addressing financial and operational challenges, an SME begins to face challenges concerning marketing and selling their products. "This is a more complex domain," he says.
"The biggest challenge," says Blau, "is creating revenue. Often there is an understanding among SMEs managers of what needs to be done, but not of how to do it." The government and entrepreneurs themselves largely lack knowledge in this area and do not understand, for example, the difference between sales and marketing and their importance.
Many professionals have an impressive body of knowledge in their field of expertise, but do not necessarily know enough about marketing their products and services. Business consulting is expensive and a business owner is not always sure who can be trusted. To address this challenge, the Israeli government currently provides marketing consulting services for small and medium businesses, at a relatively low cost, under a project of the Ministry of Economy and Industry.
Market exposure is yet another very important aspect for businesses to succeed. The government can help organise and subsidise networking, conferences and other collaboration events, as well as trade shows where SMEs can participate at a much lower cost than a regular commercial event. Such government sponsored platforms, whether industry-specific or general, are very effective in helping SMEs attract customers and business partners.
Another area that SMEs tend to be excluded from is export. "More and more governments around the world are taking steps to help SMEs enter export markets in order to expand and diversify" says Blau. "It is very dangerous when a state's export relies on one or just a few dominant companies. If one of the companies collapses, export income takes a dive."
In some countries, assistance is offered particularly to SMEs that have export potential. This includes offering opportunities for international exposure, enabling the businesses to enter other markets and expand their activity. SMEs may be invited to join ministers and other government delegations when travelling abroad in order to participate in events that attract media and partnership opportunities.
"When businesses move up the value chain, says Blau, "it creates higher salaries, which lead to higher GDP per capita, leading to higher standard of living. The objective is to motivate owners and managers to learn how to create revenue, how to be competitive and as a result more profitable. "
“Being competitive is the most complex task,” Blau continued, “It requires innovation, research, development and the protection of intellectual property, such as issuing patents.” It is in the interest of governments to offer grants for research and development relating to technologies and products with export potential.
Supporting Traditional Businesses
In Israel, the Innovation Authority has created different programmes to update "traditional industries", like the textile industry. These industries must also remain competitive so that their market share does not fall. “This may be done by introducing new machinery, processes or technologies (product or process technology), as well as inputs,” Blau explains. Alternative fuel sources, for example, can reduce energy costs significantly, but the initial investment to move to natural gas for instance, is quite high. The government can assist with the initial investment, enabling SMEs to improve their financial standing.
"Governments must take an interest in the problems that SMEs face," says Blau. This is perhaps the heart of the matter. If they are aware of how difficult it is for SMEs to carry out certain business tasks and if they understand which SMEs and sectors are worth investing in, they can effectively help spur economic growth.
In our programme SMEs: Creating Growth through Entrepreneurship and Innovation, Mr Moti Blau and other experts will share with our participants the needs of SMEs and what options are available to government bodies that wish to support them effectively. Participants will be presented with examples of what is possible.
